Appeals Court upholds expansion of state AHCCCS program

PHOENIX -- The expansion of the state's health care program to 400,000 Arizonans and the levy to fund it are legal, the Arizona Court of Appeals ruled Thursday.

In a unanimous decision the judges rejected arguments by foes that the assessment on hospitals was a new tax which, according to the Arizona Constitution, needs a two-thirds vote of both the House and Senate to approve. The levy did not get that margin.

But appellate Judge Paul McMurdie, writing for the court, said he and his colleagues do not see it that way. Put quite simply, he said the levy is not a tax.

Thursday's ruling is unlikely to be the last word.

Christina Sandefur of the Goldwater Institute, representing many current and former Republican lawmakers who voted against the 2013 expansion, vowed to seek Supreme Court review. She said the ruling creates a huge loophole in the 1992 constitutional provision she said was approved by voters to set a higher bar before taxes could be raised.

And Sandefur called the ruling "an absurd result.''

But Jan Brewer, who as governor crafted the plan, was overjoyed, saying she was "grateful'' the judges interpreted the law in this way.

Brewer, however, told Capitol Media Services that the victory could be short-lived. A health care plan being considered by Congress immediately freezes new money for the state's expansion plan and eventually repeals the funding entirely.

At the heart of the legal battle is who is covered by the Arizona Health Care Cost Containment System, the state's Medicaid program.

Prior to 2013 it provided free care for most people those below the federal poverty level, with the federal government picking up about two-thirds of the cost.

The federal Affordable Care Act, however, offered an incentive to states to expand eligibility to 138 percent of the federal poverty level, about $27,800 for a family of three. In essence, virtually all of the cost of the expansion would be picked up by Washington.

Brewer sought to sign Arizona up.

But to qualify for the federal dollars, the state had to once again provide coverage for single adults who were below the poverty level. Enrollment in that program had previously been frozen in a budget-saving move.

To pay for that, Brewer crafted a plan to have that cost paid through an assessment on hospitals.

Hospitals did not object because AHCCCS Director Tom Betlach set up the levy so that every hospital chain would actually make money from the deal: More patients with government-provided insurance coverage means fewer bills written off as bad debt because of a person's inability to pay. He even structured it so some hospitals that would not benefit from Medicaid expansion would owe nothing.

The levy is currently raising about $265 million a year.

When the expansion plan passed with a simple majority, the lawmakers who voted against expansion sued.

Sandefur said the 1992 amendment to the Arizona Constitution requiring a two-thirds vote was designed as a check on new taxes.

Specifically, she said it empowers a minority of lawmakers -- in this case, just over a third -- to block new taxes. And in this case, Sandefur said, more than a third of lawmakers were opposed to the levy.

McMurdie, however, said there is a flaw in her argument: The levy is not a new tax.

It's true, the judge wrote, that the authorization to Betlach to impose a levy was approved by just a simple majority. But he said the levy itself was not imposed by the legislature.

"Instead, the levies are imposed by an entity with discretion to set and administer them,'' the judge continued. And he said the constitutional provision requiring a two-thirds vote has a clear exception for fees set by a state agency.

Nor was the court impressed by Sandefur's argument that even if Betlach gets to decide the amount of the assessment it took an act of the legislature to authorize him to levy it.

"That is the most circular argument I think I've ever heard,'' McMurdie told her during oral arguments last month.

"I don't think it's a circular argument at all ....

The court also rejected Sandefur's contention that the levy is a tax because the funds collected are being expended for "general public purposes.''

"But while the entire expansion's purpose was to provide healthcare to more of Arizona's indigent population, the purpose (ITALICS) of the assessment, (ROMAN) as evidence by the language of HB 2010, was to 'be used (ITALICS) for the benefit of hospitals (ROMAN) for the purpose of providing health care for persons eligible for coverage funded by the hospital assessment.'' McMurdie wrote.

The anticipated appeal to the Supreme Court aside, the victory may be short-lived.

Plans being debated at Congress would freeze the expansion program.

While that would not kick anyone off, it would bar enrollment of anyone else, even if they meet the income criteria. And those who fall off temporarily cold not get back in.

And after 2020 the plan crafted by U.S. House Speaker Paul Ryan would have no funds for expansion. Instead, states would get block grants and have to decide for themselves how to use the dollars.

"This would be devastating to a lot of states, but especially to Arizona,'' Brewer said, because of the way Arizona's Medicaid program is structured. Unlike some states which pay medical providers for care, Arizona pays private insurers a set rate for each person enrolled, with insurers responsible for paying doctor and hospital bills.

Brewer, who was instrumental in the presidential campaign of Donald Trump, said she has expressed her concerns to the White House, though she said she has not talked directly to the president about them.

On Twitter: @azcapmedia

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